OxfordAQA A-Level Accounting: Partnership accounts (9615)

This study guide teaches section 3.2.5, Partnership accounts, from the OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards. The whole section is International A-level only content. The specification lists sections 3.2.4 to 3.2.10 as the content assessed in Paper 3: Financial Accounting. All figures are in dollars, and every partner and business here is invented.

Use it with the revision notes and the practice questions. Background: Types of business organisation and sole trader financial statements. See also the course hub, the printable checklist and the free diagnostics.

What section 3.2.5 covers (International A-level only)

Specification content	Skills you need
Prepare and comment on the financial statements of partnerships	Draft the income statement, the appropriation account and the statement of financial position; work out partnership salaries, interest on capital, interest on a partner’s loan, interest on drawings and each partner’s share of profit or loss; revalue assets and deal with goodwill
Prepare capital and current accounts of partners	Write up each partner’s accounts, using the Partnership Act 1890 when partners have no agreement
Account for changes in partnership	Record a partner retiring and a new partner joining

The specification notes that the dissolution of partnerships will not be examined.

Agreement or no agreement

Partners usually agree how profit is divided. Without an agreement, apply the Partnership Act 1890. Its section 24 gives these defaults:

Item	Partnership Act 1890 default
Sharing of profits	Equal, whatever capital each partner put in; losses are also borne equally
Interest on capital	None
Partnership salary	None: no partner is entitled to pay for acting in the business
Interest on drawings	The Act has no such term, so none is charged
Advance beyond agreed capital (a partner’s loan)	Interest at 5% a year from the date of the advance

Worked example A. Brannagh and Tealby have no agreement. Brannagh’s capital is 60,000 and Tealby’s is 20,000. On 1 April 2025 Tealby lent the firm 12,000 on top of her capital. Profit before any interest for the year ended 31 December 2025 was 51,600. Brannagh says she should get interest on her larger capital.

1. The loan earns interest under the Act: 12,000 × 5% × 9/12 = 450. This is an expense, so profit for the year is 51,600 − 450 = 51,150.
2. Brannagh’s claim fails: the Act gives no interest on capital.
3. Profit is shared equally: 51,150 ÷ 2 = 25,575 each.

Calculating interest on capital and on drawings

Both depend on time.

Worked example B. Fenwright’s capital was 40,000 on 1 January 2025, and she paid in another 10,000 on 1 September 2025. The year ends on 31 December. The agreement gives interest on capital at 6% a year and charges interest on drawings at 4% a year.

Interest on capital:

40,000 x 6% x 12/12   =  2,400
10,000 x 6% x  4/12   =    200
Interest on capital   =  2,600

Fenwright’s drawings were 3,000 on 31 March, 4,800 on 31 July and 2,400 on 30 November. Count the months from each drawing to the year end:

3,000 x 4% x 9/12     =     90
4,800 x 4% x 5/12     =     80
2,400 x 4% x 1/12     =      8
Interest on drawings  =    178

Income statement and appropriation account

The income statement follows the sole trader layout, with one extra expense: interest on a partner’s loan, because the loan is a debt of the firm. Rewards to partners as owners (salaries, interest on capital, profit shares) come after profit for the year, in the appropriation account.

Worked example C. Treharne, Vardakis and Quarrie run a kite repair firm. For the year ended 31 May 2026:

• profit before charging loan interest: 93,480
• Quarrie’s loan to the firm: 16,000 at an agreed 7% a year, paid by bank
• fixed capitals: Treharne 70,000, Vardakis 45,000, Quarrie 25,000; interest on capital 4% a year
• interest on drawings: Treharne 520, Vardakis 380, Quarrie 260
• salary to Vardakis: 14,000
• residual profit or loss shared Treharne 5 : Vardakis 3 : Quarrie 2.

Loan interest is 16,000 × 7% = 1,120, so the income statement ends with profit for the year of 93,480 − 1,120 = 92,360.

Treharne, Vardakis and Quarrie
Appropriation account for the year ended 31 May 2026
Profit for the year                                  92,360
Interest on drawings:  Treharne              520
                       Vardakis              380
                       Quarrie               260      1,160
                                                     93,520
Interest on capital:   Treharne            2,800
                       Vardakis            1,800
                       Quarrie             1,000    (5,600)
Partnership salary:    Vardakis                    (14,000)
Residual profit                                      73,920
Shares of profit:      Treharne (5/10)    36,960
                       Vardakis (3/10)    22,176
                       Quarrie  (2/10)    14,784     73,920

Interest on drawings is added: it is a charge on the partners, so it increases what is left to share. Check the account: 5,600 + 14,000 + 73,920 = 93,520.

If the profit had been too small to cover the salary and interest, they would still be credited in full; the shortfall becomes a residual loss, shared in the same 5 : 3 : 2 ratio.

Capital and current accounts

With fixed capital accounts, the capital account holds only capital introduced or withdrawn by agreement. Interest, salaries, profit shares and drawings all go to each partner’s current account. With fluctuating capital accounts there is no current account, and these items go straight to capital, so the capital balance changes every year.

Worked example C continued. Opening current account balances were Treharne 1,850 credit, Vardakis 640 debit and Quarrie 2,300 credit. Drawings for the year were Treharne 35,500, Vardakis 41,200 and Quarrie 15,000.

Current accounts
                   Treharne  Vardakis  Quarrie               Treharne  Vardakis  Quarrie
Balance b/d               -       640        -  Balance b/d     1,850         -    2,300
Int. on drawings        520       380      260  Int. on capital 2,800     1,800    1,000
Drawings             35,500    41,200   15,000  Salary              -    14,000        -
Balance c/d           5,590         -    2,824  Share of profit 36,960   22,176   14,784
                                                Balance c/d         -     4,244        -
                     41,610    42,220   18,084                 41,610    42,220   18,084
Balance b/d               -     4,244        -  Balance b/d     5,590         -    2,824

The equity section of the statement of financial position at 31 May 2026:

                     Treharne  Vardakis   Quarrie     Total
Capital accounts       70,000    45,000    25,000   140,000
Current accounts        5,590   (4,244)     2,824     4,170
                                                    144,170

Quarrie’s 16,000 loan is a liability, shown outside equity.

Changes in partnership

Admission or retirement ends one profit-sharing arrangement. First settle what belongs to the old partners: changes in asset values, and goodwill.

Revaluation of assets. Open a revaluation account. Credit increases in assets; debit decreases in assets and increases in liabilities or provisions. Share the balance in the old ratio: a profit is credited to capitals, a loss debited.

Goodwill is the extra value of the business as a going concern over the fair value of its net assets, built up from reputation, customer loyalty and location. If goodwill is not to be kept in the books:

1. Create it: debit goodwill and credit each old partner’s capital, splitting in the old ratio.
2. Remove it: credit goodwill and debit the capitals of everyone in the new firm (a new partner included), splitting in the new ratio.

When goodwill is kept, stop after step 1; goodwill then sits among the non-current assets.

Worked example D: admission of a new partner

Cardew and Fontaine share profits 3 : 1, with capitals of 48,000 and 22,000. On 1 October 2025 Gwilt joins and pays 30,000 into the bank. Premises rise in value by 24,000, machinery falls by 5,000 and inventory is written down by 1,800. Goodwill is valued at 32,000 and is not kept. The new ratio is Cardew 2 : Fontaine 1 : Gwilt 1.

• Revaluation profit: 24,000 − 5,000 − 1,800 = 17,200; shared 3 : 1 gives Cardew 12,900 and Fontaine 4,300.
• Goodwill created 3 : 1: Cardew 24,000, Fontaine 8,000.
• Goodwill written off 2 : 1 : 1: Cardew 16,000, Fontaine 8,000, Gwilt 8,000.

Capital accounts
                 Cardew  Fontaine    Gwilt                 Cardew  Fontaine    Gwilt
Goodwill         16,000     8,000    8,000  Balance b/d    48,000    22,000        -
Balance c/d      68,900    26,300   22,000  Bank                -         -   30,000
                                            Revaluation    12,900     4,300        -
                                            Goodwill       24,000     8,000        -
                 84,900    34,300   30,000                 84,900    34,300   30,000

Check: 68,900 + 26,300 + 22,000 = 117,200, which equals the old capitals of 70,000, plus Gwilt’s 30,000, plus the revaluation profit of 17,200. Fontaine keeps a quarter share, so her goodwill entries cancel. Cardew gives up a quarter and gains 8,000, paid in effect by Gwilt.

Worked example E: retirement of a partner

Hollis, Jarrow and Keverne share profits 2 : 2 : 1. Keverne retires on 31 March 2026. Capitals are Hollis 36,000, Jarrow 36,000 and Keverne 18,000, and Keverne’s current account has a credit balance of 2,750. Land rises by 9,000, vehicles fall by 3,500 and the provision for doubtful debts is increased by 500. Goodwill is 15,000 and is not kept; Hollis and Jarrow continue sharing equally. Keverne takes a van at its revalued figure of 7,200, receives 5,550 by bank transfer, and leaves the rest as a loan.

• Revaluation profit: 9,000 − 3,500 − 500 = 5,000, shared 2 : 2 : 1 as 2,000, 2,000 and 1,000.
• Goodwill created 2 : 2 : 1: 6,000, 6,000, 3,000. Written off 1 : 1 by Hollis and Jarrow: 7,500 each.
• Move Keverne’s current account balance into his capital account first.

Capital accounts
                  Hollis    Jarrow  Keverne                 Hollis    Jarrow  Keverne
Goodwill           7,500     7,500        -  Balance b/d    36,000    36,000   18,000
Vehicles (van)         -         -    7,200  Current a/c         -         -    2,750
Bank                   -         -    5,550  Revaluation     2,000     2,000    1,000
Loan - Keverne         -         -   12,000  Goodwill        6,000     6,000    3,000
Balance c/d       36,500    36,500        -
                  44,000    44,000   24,750                 44,000    44,000   24,750

Keverne is owed 24,750 in total. The 12,000 loan is a liability; interest on it will be an expense.

Commenting on partnership statements

“Comment” needs judgements backed by figures:

• Does each partner’s total reward (salary plus interest plus profit share) match the capital and effort they contribute? In example C, only Vardakis earns a salary; ask whether extra work by him justifies it.
• Is a current account in debit? Vardakis drew 41,200 against 37,976 credited this year, draining cash.
• On admission or retirement, is the goodwill valuation fair to both sides, and can the firm afford the cash paid out?

Common errors

• Showing loan interest in the appropriation account instead of the income statement.
• Subtracting interest on drawings in the appropriation account.
• Giving a salary or interest on capital to partners who have no agreement.
• Sharing the revaluation result or goodwill created in the new ratio, or giving a share to the incoming partner.
• Forgetting to write goodwill off when it is not kept, so it stays as an asset.
• Leaving out a retiring partner’s current account balance when finding the amount due.

Next steps

Condense the methods with the revision notes, then try the practice questions. Another International A-level financial accounting topic is accounting for organisations with incomplete records; for planning your revision see OxfordAQA A-level Accounting exam preparation page.

Official syllabus

OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards, published by OxfordAQA: section 3.2.5, Partnership accounts.